Madhusudhan Jaju Vs Income Tax Officer (ITAT Hyderabad)
The Income Tax Appellate Tribunal (ITAT), Hyderabad, has issued an order partly allowing the appeal filed by Shri Madhusudhan Jaju against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2013-14. The Revenue’s cross-objection was also allowed for statistical purposes, with certain aspects remanded back to the Assessing Officer (AO) for further verification.
The case originated from a reassessment initiated under Section 147 of the Income Tax Act, 1961, after the Assessing Officer received information that the assessee had sold land for ₹45 lakhs, while the Stamp Duty Valuation (SDV) was ₹96.20 lakhs. Following a reference, the Departmental Valuation Officer (DVO) valued the land at ₹67.34 lakhs, which the AO adopted as the sale consideration for calculating Long Term Capital Gains (LTCG). The AO also disallowed certain expenses claimed by the assessee, including cost of improvement and litigation expenses, and denied the exemption claimed under Section 54F of the Act for investment in the Capital Gain Account Scheme (CGAS).
On the issue of sale consideration, the ITAT sided with the assessee. The Tribunal noted the evidence presented by the assessee regarding ongoing litigation concerning the land, which, according to the assessee, compelled a distress sale at a lower price of ₹45 lakhs. Relying on a precedent set by a co-ordinate bench in the case of DCIT Vs. Sunil Narang (ITA No.1506/Hyd/2017), the ITAT held that when a property is under litigation, the actual sale consideration received by the assessee should be considered. Consequently, the AO was directed to adopt ₹45 lakhs as the sale consideration.
Regarding the cost of improvement of ₹7.50 lakhs, the ITAT upheld the disallowance by the lower authorities. The Tribunal noted that the assessee failed to provide any supporting evidence for these expenses, incurred over several financial years. The ITAT stated that in the absence of relevant evidence, such claims are not permissible under the Act. Similarly, the claim for ₹1 lakh towards litigation expenses was partly allowed. While acknowledging the existence of litigation related to the land, the Tribunal, noting the lack of specific evidence for the claimed amount, allowed a deduction of ₹50,000. The payment of ₹11 lakhs to litigants, as per a Memorandum of Understanding, was allowed as a deduction from the sale consideration.
The denial of exemption under Section 54F due to the deposit in CGAS being made after the due date specified under Section 139(1) of the Act was remanded back to the AO. The ITAT referred to the provisions of Section 54F(4) and various judicial pronouncements, clarifying that while the deposit should ideally be made before the due date of filing the return under Section 139(1), the exemption can still be considered if the amount is subsequently utilized for the purchase or construction of a residential property within the stipulated time frame under Section 54F. The AO was directed to verify the utilization of the CGAS deposit and allow the exemption if the conditions of Section 54F are met.
In the cross-objection filed by the Revenue, the contention was that the assessee was not eligible for the Section 54F exemption as he owned more than one residential house on the date of the transfer of the original asset. The Revenue pointed to the assessee’s Income Tax Return showing income from two house properties. The assessee argued that one of these properties was commercial. The ITAT found it necessary to verify the nature of both properties and remanded this issue to the AO. If the AO finds that both properties were residential and owned by the assessee on the date of transfer, the Section 54F exemption should be denied; otherwise, it should be allowed.
In conclusion, the ITAT partly allowed the assessee’s appeal regarding the sale consideration and partial allowance of litigation expenses. The disallowance of the cost of improvement was upheld. The issue of Section 54F exemption, both concerning the CGAS deposit timing and the number of residential properties owned, was remanded to the AO for further verification and decision in accordance with the observations made by the Tribunal.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
